Japan regulator to punish loan firm Aiful-paper

TOKYO, Apr 14: Japan's financial regulator will order Aiful Corp., the country's biggest consumer lending firm, to suspend business at all of its 1,700 outlets for three days as punishment for coercive loan collection methods, the Nihon Keizai business daily reported on Friday.

Sanctions against Aiful would come at a sensitive time for the consumer loan industry, in which foreign investors have taken large stakes, as lawmakers and regulators consider proposals to curb what critics say is exploitative lending.

One proposal would lower the maximum interest rate Aiful and others can charge to 20 percent from 29 percent.

In a statement, Aiful said, ''At the current time there is no specific truth to the report.'' A Financial Services Agency spokesman said it had not made plans to punish Aiful.

Shares in Aiful, the sector leader by market capitalisation, were untraded at 7,200 yen, down 12 percent from Thursday's close, with a glut of sell orders. Rivals Takefuji Corp. and Acom Co. Ltd. were trading down about 3 percent.

Aiful and other consumer lenders offer unsecured personal loans at interest rates that can be more than twice the 8 to 12 percent charged by banks for credit card loans.

Consumer loan firms have waged a broad and largely successful campaign to soften their image in recent years, reversing the long-held popular view of them as shady loan sharks who chase unwary salarymen into bankruptcy.

Aiful has led the marketing change. Its ubiquitous television advertisments launched its mascot, a chihuahua named Ku-chan, to national fame.

Consumer lenders' increased respectability has helped them seal alliances with major banks such as Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group, which have turned to the consumer finance sector to supplement their core business of low-profit corporate loans.

Still, problems have continued to dog some consumer lenders.

Longtime industry leader Takefuji has been on the defensive since its founder, Yasuo Takei, was convicted in 2004 of tapping the phones of journalists who had been reporting on the firm.

The Nihon Keizai said the FSA would order five Aiful outlets found to have used overly aggressive collection tactics to suspend business for 20 to 25 days. All other outlets will be ordered to halt operations for three days, it said.

The FSA would announce the punishment as early as Friday, the paper said. Aiful customers will still be able to repay loans during the suspension, it added.

An FSA advisory group has been discussing tighter restrictions on the industry including lower interest rates and curbs on its advertising.

Lawsuits by borrowers have claimed that consumer lenders have coerced clients into accepting the maximum 29 percent interest rate, which they are legally allowed to charge only under certain exceptional circumstances.

Aiful and other top consumer lenders have cut their annual profit estimates by 25 to 30 percent after adding to reserves against potential reimbursements to borrowers related to the suits.

Economics and Financial Services Minister Kaoru Yosano, asked about the report, told a news conference that it was natural for the FSA to take action against misconduct but did not comment further.

The consumer loan industry as a whole has benefitted from falls in personal bankruptcies as Japan's economy rebounds, but analysts say profit growth is threatened by fierce competition.

REUTERS